Steps To Follow For Opening A Demat Account

Many banks are taking out there IPOs and most of you must be interested in investing money in the IPOs that are coming up. For this you first have to have a "demat account".

A demat or ‘dematerialised’ account holds shares in electronic form, thus saving you the bother of holding shares in paper form. Possessing a demat account is now a prerequisite for stock market investments.

You can open demat account in banks, financial institutions and stock broking houses. The broking houses in such cases also act as DPs (depository participants) intermediating between the depositories — CDSL or NSDL and the investor. To open a demat account, first of all you have to submit an application to a DP and along with it submit required documents. Once you have a demat account to your name, you can open a trading account with a broker of your choice.

The shares bought and sold by you are reflected in your demat account. Any previously held physical share can also be dematerialized and transferred to the account.

The DP, at regular intervals, provides you with an account statement showing the balance of shares in your demat account and transactions during a period.

Following steps can help you open a demat account:

First of all you have to look for the institutions offering DP services. You have two options. Either you choose a bank/financial institution or a stock broker who could provide you the DP services as well. The factors that help you in the selection should be the charges and location convenience. The fees charged for DP services differ across the industry. Though the rates change, the charges normally categorized under the following heads:

Account openingfee

Annual maintenancefee

Transaction fee

Besides the above, depository participants also charge service tax as applicable. A bank or other DP might sometimes waive the initial account opening fees. It is better to choose a bank where you have been holding your savings account for long, then much of the paper work would get simpler and documentation will not take much time, as you are already known to the banker.

The Documents required opening a demat account:

A set of documents needed to be provided to the agent at the time of opening account are:

1. Duly completed account opening form and passport size photos;

2. A copy of PAN card as proof of identity;

3. Personalized cheque/Copy of the bank passbook

4. A copyof passport/voter ID/ ration card as a proof of address

Signing of the DP-investor agreement.

On submitting of the complete set of documents, the agent will complete the other formalities with the depository and facilitate opening of the account. You will be given a unique account number (BO ID- Beneficiary Owner Identity), which will serve as a reference number for all further transactions. After that you, must also collect delivery instruction (DI) slips from the DP. A DI slip has to be filled and sent to the DP on every delivery (sale of shares) you make. DI slip is an instruction to the DP to debit your account and credit the broker’s account with the specific stock.

It is very important that the DI instruction should reach the DP the very next day after the sale, failing which the securities won’t reach the broker and hence the exchange. This could result in auction of the security. For instance the exchange is able to procure those shares only at a higher price, and then the resultant loss has to be borne by you, as investor. If you have demat account as well with your stockbroker you can escape this irksome process of sending DIs, and give him a standing instruction (POA-Power of Attorney) for delivery of stocks that you sell.

Once you constrict down on a DP and get the documents ready, opening a demat account is very simple process.

Position Sizing and Risk Management

With the recent horribly tragic events of real estate and debt instrument investment experiences, some public information on risk management deserves attention. Position sizing deals with the portion of total asset exposed to risk/reward.

Putting it all on the line or "betting the ranch" tends to carry exceptionally high risks of ruin, since it leads to large losses as soon as the underlying event goes south. It would make more sense to allow many different "bets", all with positive statistical expectancies, to occur at once. As the law of large numbers kicks in, a positive return will eventually follow. Luck determines the speed of it.

Quick example-

Basic trend following stock investment strategies carry approximately 33% winning rate on average. (Many still come out profitable after long strings of trades, because the average winners carry much larger size than the limited losing trades.) This basically implies that out of each 10 lowly correlated positions, one would expect 2-4 winners at best, but those home-run winners will bring all the money home.

To execute this and lower the risk of total loss, many professional traders commit (i.e. risk) 1-5% of capital per trade/investment unit. Strings of losing trades occur from time to time, and this scheme remains the only method of surviving them before the large winners ensue. The more probabilistic trials, the probability of the statistical edge kicking in becomes much larger.

All said and done, you want to run the investment like a casino, where the edge sits on your side. Luck determines whether an individual investment unit ends profitably or negatively. Study and gain that positive expectancy. Plan the position sizes meticulously. The money will follow.

Do You Know Your Investment Style?

Being familiar and sticking to your own style of investing will help you make more methodical choices instead of taking unnecessary and uncalculated risks. It really boils down to three different styles of investing and those styles describe your risk tolerance. The three investment styles are conservative, moderate, and aggressive.

If your risk tolerance is low then you will probably be sticking around the conservative or moderate risk investments. If you don't mind taking higher risks then you would be an aggressive investor investing in stocks such as penny stocks. Remember, it is also your financial goals that dictate what style of investing you fall into. Conservative investments are usually long-term investments with a return that accumulates over years rather than over night like some penny stocks.

Retirement goals can be associated with conservative and moderate risk investments. However, if you have a goal to buy a house or a car using investment gains then you'll most likely be involved in more aggressive investments.

Those who fall in the conservative investment category usually want to maintain the money they initially invested. This means they're usually happy and comfortable investing so long as the investment never dips below the money they initially invested. Common stocks and bonds are usually preferred by this type of investor. Also, using savings accounts or CD bank accounts can fall into the conservative style.

If you feel you are a moderate risk investor then you will probably invest half of your available funds into conservative investments for safety sake and then the other half in higher risks, higher return potential investments. This hybrid style sort of keeps you anchored while "playing" with higher risks.

At the other end of the spectrum we have aggressive investors. These investors will take risks that other investors are simply not willing to take. They invest higher amounts of money in riskier ventures in the hopes of achieving larger returns, either over time or in a short amount of time. Aggressive investors often have all or most of their investment funds tied up in the stock market. Investing mostly or solely in penny stocks can also be described as aggressive.

It is important to determine what style of investing you will use before taking uncalculated risks. Your style will be determined by your financial goals and your risk tolerance. No matter what type of investing you do, however, you should carefully research that investment. Never invest without having all of the facts!

Deciding What Your Investment Goals Should Be

It is true that many investors are not rich. The main reason for this is just jumping right in and assuming no skills are required. This is far from the truth as steady profits from investing usually come to those with the right knowledge. There will always be risk with investing but there is more risk if you invest without learning first.

You not only have to learn the ropes so to speak but you should also know why you are investing in the first place. You cant just say "I want to make more money" and then jump into something like penny stocks. Thats an empty plan and a recipe for disaster. Really sit down and think about you goals, dreams, and aspirations. Write all this down on paper and decide how you can achieve these things through different types of investment whether short-term aggressive or long-term conservative.

Lets talk about realistic expectations. So many people go into investing with the unrealistic expectation that they will become rich in a day or a week. Im sure you have heard stories of this actually happening but remember this not the norm. Thats lottery hopes. Real money will come and can come quickly if invested correctly. If you're only interested in making money quickly and are willing to accept the risks associated with such investments then you should become as smart as possible on those types of investments before jumping in.

If determining your investment goals seems like a daunting task then you may want to consider speaking with a financial planner. Thats what they are there for and they can save you a lot of time and effort. You can expect realistic goals from a financial planner for they have nothing to gain by misleading you.

Take you time and remember that there is more to investing than just giving someone your money and hoping to win big. A big part of investing is first investing in knowledge that will pay dividends over and over again throughout the years as you invest.

Be careful and be safe with your own money as no one else will care about it as much as you. Diversify and make methodical decisions that will maneuver you in a position of profits. You will see this is easier than it seems as you begin. Just stick to the basics of investing never veering for investing fads. Good luck and happy investing.

Learn To Invest Money - How You Can Afford To Invest

Many people don't even try to learn to invest money because they think they are unable to afford to invest and that investing is purely for the rich who have nothing better to do with their money. This however is usually not the case. Below are a number of ways you can free up income that can be invested for the future.

It is estimated that over 50% of mobile phone users are on the wrong tariff. Do you use all of your monthly call allowance? People are often drawn to sign up for the more expensive tariffs that are offered with the latest all singing, all dancing handsets when in reality it would often prove much cheaper to opt for a much cheaper tariff and simply buy the handset separately. If you can trim just £20 per month off you mobile bill then straight away you have freed up £240 per year to invest.

Utility bills can also offer the chance to cut down your monthly outgoings. By turning down your heating thermostat by just one degree can save you as much as £50 throughout the year.

Other tips include turning the lights off when you leave the room, only filling the kettle with the amount of water you want to use. Washing your clothes at 30 degrees as opposed to 40 or higher is another idea now being publicised by washing powder manufacturers.

Other ways to save may be to make your own lunches and coffee at work. Four cafe bought coffees a day from one of the big chains at £2 each works out to £480 over a working year!

All of these things mentioned above sound small on their own however you only have to do a few sums to see that if you do all of them you can save considerable amounts of money with which you can then invest.

Are Commodities The Next Investment Bubble?

I have heard it said that in a bubble, the price of the hot item affects the economy more than the economy affects the price of the hot item. While this was true during the past two bubbles (internet/technology stocks of the late 1990's and early 2000 and housing) does this hold up with the current sector shift into commodities? Could we be witnessing the formation of the next bubble?

Before we get ahead of ourselves, it is a good idea to determine what classifies a "bubble." A bubble can be loosely defined as when excess resources, capital and financing are being poured into a specific hot investment as compared to other capital investments. There are differing types of bubbles, but James Montier did a good job of categorizing them:

1. Greater fool theory - higher prices are willing to be paid as long as there is someone else to buy it from them - speculative
2. Fundamental analysis - investors err by extrapolating that past returns will continue indefinitely into the future
3. Fads - investors succumb to pressure to conform to the majority's view (social and psychological factors)
4. Informational - prices deviate from the fundamentals because investors assume they have hidden information that supports higher prices

Additionally, if you take a look at both of the most recent bubbles mentioned above, you can see a consistent pattern emerging from their formation to the eventual bursting:

- Bubbles usually start because of rotational investment shifts; investors seeking "the next big thing" move money into these investments in an attempt to improve returns

- Hype and over-promotion become rampant

- The word "new" is usually always bandied about by the pundits and used by investors to rationalize why this time is different than the past

- Institutional investors are usually leading the charge into the hot investment

- Individual investor follows the institutional money

- The non-investor feels they are being left out and follows the herd, believing they must not miss out

- Speculation follows - leverage and margin are used in excess

- Bubbles seem to be always tied to loose credit policies or easy money

- Bubbles tend to initially fund unsound business, and promote over-investment

- Bubbles invariably start slowly and gradually build over a period of years

- At the peak of a bubble misrepresentation and fraud flourish

- After the peak, prices fall precipitously and then partly recover

- After the recovery there is usually another protracted period when prices stay stagnant or drift lower

- Bubbles are often followed by economic recessions

The inevitable bursting of a bubble can be very painful and has the tendency to redistribute wealth, as the early adopters who cash out take the money from the late arrivers. Sadly, the late investors then usually get saddled with an investment rapidly declining in value that frequently becomes illiquid, and as such they lose out even more. However, even with the associated pain bubbles are good for a free economy. Daniel Gross points out in his book, "Pop," that bubbles leave behind a new commercial and consumer infrastructure. "The stuff built during infrastructure bubbles - housing and telegraph wire, fiber-optic cable and railroads - don't get ploughed under when its owners go bankrupt," he reasons. "It gets reused - and quickly - by entrepreneurs with new business plans, lower cost bases, and better capital structures.

So where does this leave us with our original questions?

As an investment advisor I am in a unique position to be able to see the trends of a bubble develop. I see when institutional money begins its shift into other markets. I see the promotional machine begin and when it ramps up to a furious pace in an attempt to lure investors' money. I see when clients begin to take abnormal interest in their portfolios and start calling to make sure they have some exposure to the current "hot" investment. Finally, my clients let me know it's time to take some profits off the table because the phone rings continuously requesting a change in their portfolio to heavily skew it away from a successful, less risk, diversified strategy to one of putting the majority of their eggs in one basket. While the timing may not be spot on, every time we have had bubbles my clients turn out to follow that consistent pattern mentioned above, which is a great forecaster of things to come. So when clients started calling and asking about their exposure to commodities, it raised a red flag for me.

Without question, commodities could be the next technology or housing bubble. Many of the patterns seen in past bubbles are present today. Based upon my clients' activity level I would put us mid-stream into the bubble. From a fundamental standpoint as well it seems only mid-stream because some of the imbalance in commodity prices is due to the current imbalance in supply and demand and is therefore justified. Upward price adjustments can also partially be contributed to the weakening US dollar (e.g. oil's mercurial rise - the largest component of a commodity index - which is pegged to the US dollar). With the dollar continuing to fall, some of the price increase is exacerbated. The rest is due to world economic expansion and, my cause for concern, speculation. Because the majority of the rise is not speculative, at this time it is a little different than previous bubbles and therefore makes it harder to gauge. Of course, the greater the speculation, the closer we approach a true bubble.

When it comes to bubbles recognition is only half the challenge. The other half is what to do and when to do it with regards to your investments. It is recommended that investors manage their risk exposure by never investing more than 5-10% of their assets into any one sector. This approach always limits potential losses so if a bubble does occur, while you may have some minor pain (a 10% loss) you have not been wiped out. Another prudent practice is to regularly review your asset allocation and rebalance your portfolio to insure that any investments that have become out-of-balance are readjusted (i.e. partially sold off) to within the risk tolerance you have set for your portfolio. The advantage of this is that during bubbles, those investments will rise, and regular rebalancing will bring this investment back to an acceptable risk level, thereby reducing exposure and locking in some profits. While this may not maximize gains it unmistakably minimizes losses, which are a major concern if the potential for a bubble exists.

As the hype surrounding commodities continues to build, the chances are increasing that we are moving closer to a true bubble, which is terrible news considering we have yet to recover from the previous one. The effects of another bubble so soon after the last could be devastating to the US economy. However, the good news is that it's not too late to turn it around. Even with the excess capital flow into commodities continuing unabated, I feel we are still months, if not a few years, away from this situation turning into a full-fledged bubble. This gives the forces that could slow it down or reverse the trend a chance to take hold. In the meantime, be aware that the signs are there, because you don't want to end up as one of the late arriver's.

Statistical Expectancy to Calculate Risk

The world does not run on absolute certainty, yet the strategic decisions we choose affects future outcomes somehow. The irony seems amplified with those who understand little toward statistical expectancy. Having adequate grasp of this subject makes a more informed investor for any business or personal desires.

The concept is simple.

E = Expectancy

P(w)= Probability of winners

S(w)= Average winner Size

P(l)= Probability of losers

S(l)= Average loser size

E = [P(w)*S(w)]-[P(l)S(l)]

E.g. let's look at New Zealand finance companies. They pledge to provide retail investors a slightly above the government bond interest rate as long as their own investments do not experience corrections or draw-downs. Historically speaking, credit markets have a positive correlation to the general economy, and the world has experienced at least 2 years of recession each decade, or 2 out of each 10 years. From this we can conclude that these companies will not end every single year profitably.

I.e. the rough probability of a losing year is then 2/10=0.2 or 20%, and the probability of them ending each year profitably stands at 1-2/10=0.8 or 80% at best. They offer retail investors annual rates of roughly 9.x% (I'll round it up to 10%) in the years they make performance targets, and in a bearish year the average investor looks to take a loss of 30% to 70%, averaging 50%.

So can the average retail investor "expect" to profit over the long run using these companies?

Probability of a profitable year: (80% or 0.8)

Average investor profit: (10% or 0.1)

Probability of a bad year: (20% or 0.2)

Average investor loss: (50% or 0.5)

E= (0.8)(0.1)-(0.2)(0.5)

E=0.08-0.1

E= -0.02

A negative expectancy suggests a net loss will likely occur in the long run. In fact the average roulette player has a less negative expectancy than the above; in other words you would likely lose less money playing roulette at the casino than investing with the finance companies.

To make profit or receive greater reward consistently, you need the odds on your side. Having a positive expectancy remains one of few ways to verify that. So learn the math, and make wiser decisions.

3 Kinds of Investors

An investor is someone who puts his money into something with the aim of deriving a benefit or profit from it. When it comes to investment there are three kinds of investors:

1. Foolish investors
2. Average Investors and
3. Wise investors.

The foolish investors are people who invest all their money in their wants and desires. They are out for the latest shoes, designer this and that even when they have little money. They hardly know what it means to delay gratification. All they know is that they must have what they desire and crave for NOW, so they simply invest in that. Of course such things bring no returns. They principally purchase liabilities rather than assets. It may be better to pause here and define liabilities and assets because many are of the impression that assets are items we spend money to buy while liabilities are debts or items that are not useful to you. This may not be entirely true.

Assets are simply items we possess that bring in more money for us while liabilities are items that take our money from us. For instance, if I own a car that I use personally it is a liability because it takes away money from me in terms of maintenance to keep it in top form to have it serve me optimally. But if I use this same car as an airport taxi it becomes an asset because it brings in more money on a daily basis. When the foolish investors attempt to venture into investing in what could possibly bring returns they do so in things they hardly understand. Consequently they end up losing more money

The Average investors invest in their needs and basic necessities of life. They ensure that they have food to eat, send their children to school, pay medicals etc. They buy luxuries first when ever they come into big cash. They want to please and compete with their neighbours and friends. Imagine someone who earns for the first time in his professional working career $25,430 after working for 20 years and the first thing he does is buy a brand new car for about $23,500. What makes this situation even more ridiculous is that the guy already has a fairly good car, is in debt, lives in a rented apartment and is unmarried! Are you in this category?

The wise investors ensure that their money go work for them. They invest heavily, consistently and with focus in investments that they clearly understand and bring high returns. When it comes to monetary issues sending their money to work for them comes first. The delay gratification and buy luxuries last after first investing. In fact they use part of the money they have made from their investments to finally purchase the luxuries they desire.

Let's TAKE ACTION right now. Which category do you belong to? In the last one month what have you found yourself doing with money? Take a look at all the things you bought. How many are assets and how many are liabilities? Ask yourself did you save, spend or invest money?

Learn to save and invest money today so you can be a wise investor. This is another secret to growing wealth.

Expectations - Part 1 - What Should You Expect From Your Financial Advisor?

You should have a clear idea of what you expect from your Financial Advisor. From my experience, clients that are unhappy are usually not sure about exactly they want from their advisor or what to expect. What should you expect from your advisor?

1. Communication in good and bad markets.
2. Availability if you have questions. Give them a reasonable amount of time to call you back.
3. A plan for your investing, not just random "good deals".
4. Regular updates and meetings. Every six months at least. More often for more complicated plans.
5. A Complete review of your financial situation, often.
6. Recommendations for your investments and other areas of your financial life.
7. Explanations of why investments were moved or changed or why recommendations were made until you understand the reasons clearly. Keep asking until it is clear.
8. Commissions and Fees should be fair. Ask for an explanations if something seems odd.

These are a few things to make sure are happening with your current advisor. Discretionary trading is another topic to ask your advisor about. Do they participate in it or do they not? This is when the Advisor can make trades in your account based on what they think is best. Will they call you when they do this to let you know? Do you want them to call you?

If your advisor is not meeting your expectations then call them and ask them about it. Be honest. Schedule a meeting, tell them everything you want and ask if they can do it. Give them a chance and if they still don't meet your expectations then shop around until you find someone that will.

Don't forget that you have responsibilities as a client as well. In the next article we will discuss those responsibilities.

Your Own Enemy

When I was a kid I remember having a plan. I would get a job, which I did, and slowly start to accumulate money. It was that simple.

But what began as a simple idea slowly became a frustrating battle with my own ambition. I was 16 years-old, and I was obsessed with the stock market.

I remember my "nest egg" being a small cigar case that sat in the corner of my room. To the best of my ability, I would cram almost all of my income into that box and try to forget about it.

I had no idea that this process would soon become a valuable tool for earning profits in the stock market.

So although this may sound straightforward, the worst mistake an investor can make is opening that small cigar case.

Emotions are a big part of money management. Slight changes in book value often cause investors to make wrong decisions over 50% of the time. Checking stocks daily is a terrible decision that can lead to a history of regret.

1. It's proven that investors who track their investments every 3 months receive higher returns.

2. Watching your daily profits can be exciting, but this will eventually backfire.

I understand that maybe there's a rare occasion in which you take the risk of buying a high growth stock. Let's say it doubles, or maybe even triples. Any investor would have to watch that stock like a hawk in order to take their profits. I understand.

But that is not how you make money.

As the famous saying goes, "The tortoise always wins the race."

Buying quality stocks in any marketplace, at any time, will reward you in the long-term if they are just left alone.

Try putting your portfolio on autopilot, you'll make more money and get a lot more sleep.

Investing For Beginners

Investing your money is a good way to put it to good use for your future. This means that you need to invest wisely, and you will need to learn all you can before you start. There are many different ways to go when you start out, but here are some tips to help you save money as you start investing it.

Learn From the Experts

As you start out in the investing world, you want to make sure that you are doing so as an informed investor. These are the only kind that make any money in the long run, and you want to be sure that you are one of them.

Many books are available in your library on the subject, as well as much information can be found online. Be sure to do more than just a little reading, because only knowing a little will most likely be of little profit. The more you know the more you can profit from being able to make the right choices.

Know How to Trade

Knowing how to trade will save your investment money as much as possible and enable you to make a profit from it. Study the tips available from professional day traders and online investors, as well as the well-known traders like Warren Buffett. Their tips are invaluable when to comes to making a profit, or knowing when to sell or buy stock, or other investments, too.

Trading effectively and safely means that you will need to learn all the terms that apply to trading. Be sure also to know how the system works so you can use the system to your advantage. If you work through a broker, know how it works and where there may be weaknesses in that approach. Online trading may be one of your best methods if speed and results in real time are necessary for your trading technique.

Choose Your Investments Carefully

Knowing what you are looking to do with your investments will help you to determine what type of investments you should make. There are many different ways to invest. Investing includes markets like real estate, stock market, mutual funds, Forex, bonds, metals, and much more.

You also need to choose whether you want fast-moving markets, which you need to watch as the trading is taking place, or the slower markets where you simply let your money sit. You also could invest in both to provide a greater overall stability in your investments.

Balance Your Investments

Wise investing will also include a balancing of your investments - developing a balanced portfolio. This is necessary because a market may crash unexpectedly and you could lose all of your investments in that area, or sector. Divide up your investment money into 5 or 6 parts and place each part into different types of investments, and in different sectors. One sector may be in electronics, or communications, another in metals, another in business start-ups, etc. If they are all in one sector, you could lose them all at once.

You also want to have a balance among your investments in the sense of time. Place some of your money into long term investments such as bonds, CD's, or mutual funds. Other money can go toward long term stock investments, and some towards short-term investments where money can be made quickly.

Diversification Does Not Lower Risk

"You want to reduce your portfolio risk. Diversify, diversify, diversify..." I remember hearing some stock broker ranting on TV a decade ago, as the bear market hit US in 98 along with the collapse of Long Term Capital Investments. The audience at the studio watched her intently, the pain of recent losses still apparent on their faces. They all wanted desperately a way out of the hole, and turned to this supposedly professional for advice. She kept going with the metaphors of eggs and baskets, how risk is bad... Just exactly how and why, she did not bother mentioning.

The concept never made sense to me even before any exposure to the financial markets. You buy a stock, then you buy some more because you hope they will move against each other, does that not simply lead to low potential returns, if any, and high commission costs?

With the advent of Exchange Traded Funds and the explosion of hedge funds throughout the world, correlations between stocks, bonds and commodities have become much higher than the days of Markowitz (founder of modern portfolio theory). An educated guess points to speed of information between newly developed funds making similar price impacting transactions concurrently.

ING, a fund management business based in Australia, likes their investment advisors boast "safety" of their holdings due to diversification. Look up ING fund unit prices, every single one has declined since the sell off of last July; some have taken draw downs up to 70%. So much for the magic of "diversification" huh? The only logical conclusion pushes that some of these losses would probably have been lessened if they did NOT "diversify" and kill the performance with transaction costs.

Does it even matter why or how this phenomenon has occurred? It simply happens, and knowing it alone could help you become a more informed investor or trader.

Secure Your Future By Investing In Bonds

For any financial plan, bonds are the core element to invest and grow wealth. It can be defined as a debt security. When you purchase a bond, you are lending money to an issuer such as government, municipality, corporation, federal agency or other entity. In return for that, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the face value of the bond when it "matures," or comes due. It is best to invest in bonds because one will get a predictable stream of payments and repayment of principal, with interest.

There are different types of bonds for you to choose. It includes municipal bonds, corporate bonds, mortage-backed bonds, surety bonds etc.Surety bond is an agreement among three parties the principal, oblige and surety. In construction companies surety bonds are frequently used. A key term in nearly every surety bond is the penal sum, and it is specified amount of money which is the maximum amount that the surety will be required to pay in the event of the principal's default.

This allows the surety to assess the risk involved in giving the bond; and the premium charged is determined accordingly. If the principal defaults and the surety turn out to be insolvent, the purpose of the bond is rendered futile. The principal will pay a premium in exchange for the bonding company's financial strength inorder to extend surety credit. In the event of a claim, the surety will investigate it and if it turns out to be a valid claim, the surety will pay it and then turn to the principal for reimbursement of the amount paid on the claim and any legal fees incurred. There are mainly two categories of bond types: contract bonds and commercial bonds. Contract bonds guarantee a specific contract and it includes performance, bid, supply, maintenance and subdivision bonds. Commercial bonds guarantee per the terms of the bond form and examples are license & permit, union bonds, etc.

A surety bond issued by an insurance company to guarantee satisfactory completion of a project by a contractor is performance bond. Many performance bonds give the surety three choices they are; completing the contract itself through a completion contractor ; selecting a new contractor to contract directly with the owner; or allowing the owner to complete the work with the surety paying the costs.

A bid bond guarantees the owner that the principal will honor its bid if awarded the contract. If the principal refuses to honor its bid, the principal and surety are liable on the bond for any additional costs that the owner incurs in reletting the contract. The penal sum of a bid bond is often ten to twenty percent of the bid amount. In the case of payment bonds it gives guarantee to the owner that subcontractors and suppliers will be paid the monies that they are due from the principal.

If you need a good return in your requirements for any of your needs then the best investment is in bonds.

Berlin Residential Property Market - Why Invest in 2008?

The economic environment

The outlook for the German economy is positive and the economic upturn is continuing. 2008 will see a change from purely export driven growth to more growth support through domestic demand. For the first time in years significant raises in salaries are currently negotiated and the consumer climate can be seen as friendly. This will be associated with further reduction in unemployment, as companies are prepared to take on staff. Growth in the economy can be expected to stimulate the German property market.

The Local Aspect

In 2006 the Berlin economy grew by 1.9 % and 7,000 new jobs were created. While the growth is below the German average the increase in jobs and decrease in unemployment is well above the average. These figures reflect that numerous businesses have decided to grow their business in Berlin or set up new offices and branches here. The focus is on media and innovative technology.

The population is stable at 3.4 million after a period of migration in the 1990's into the newly available suburbs after the fall of the wall.

The German Property Market

Germany has seen a major influx of international capital to its property market over the last 2-3 years with record year 2006 which was considered a record year still being outranked by 2007. The year 2008 is seen by most market players as a year of consolidation. Increasing numbers of institutional investors will become sellers which should offer interesting opportunities for smaller and private investors as it is unlikely that all sales will be in large packages.

The Berlin Property Market

After years of stagnation the Berlin property market started a boom phase in 2006 which has carried on into 2007. Especially international investors have absorbed record numbers of undervalued properties. The turnover in 2006 went up by 50% to a record value of 15.8 billion €. Naturally this has led to a price increase the initial yields of 8 to 10% are no longer achievable in acceptable locations. The yields in top locations are below 6% whereas good locations like Steglitz still produce offers between 6.5 and 7%, many of them with short term development potential (upside).

The new rent table 2007 ("Mietspiegel 2007") has already shown increases in residential rents. The picture is variable though between stable and increases.

Is it not too late to jump on the train?

No, it is not too late! Attractive property, even at entry level is still coming into the market, with positive cash flow and a realistic expectation for capital appreciation. Careful research is required to make sure the information provided is met by the reality after the purchase. Market knowledge is required or local support is recommended.

Conclusions

The economic situation in Germany is positive with the prospect of a longer period of prosperity. The Berlin property market has three main value drivers:

1. Stable population development accompanied by new jobs.
2. Long term commitment to the location by the government and international business.
3. Still low prices compared to other European capitals with yields that allow a positive cash flow after financing.

With a follow-up article I will provide information about the rent in different parts of Berlin and different types of buildings. You will find this article on the authors website below.